To see the facts clearly, put on your political goggles -- San Francisco Chronicle

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To see the facts clearly, put on your political goggles

Lee Drutman

Monday, April 16, 2007

Full Disclosure

The Perils and Promise

of Transparency

By Archon Fung, Mary Graham and David Weil

CAMBRIDGE UNIVERSITY PRESS; 282 Pages; $28
Maybe Louis Brandeis only had it partially right. Sure, sunlight can be the best disinfectant. But it depends. Is it direct sunlight? Or is it filtered? If so, by what? And what are we trying to disinfect, anyway? As it turns out, things get complicated quickly when you start questioning this bit of conventional wisdom. According to Archon Fung, Mary Graham and David Weil, sunlight has its dark side, and "simply placing information in the public domain does not guarantee that it will be used or used wisely."

The authors (a political scientist, a lawyer and an economist, all based at the Kennedy School's Taubman Center for State and Local Government at Harvard University) got interested in what they call "targeted" transparency policies about five years ago, when they noticed these kinds of policies popping up all over the place (by "targeted," they mean focused on a particular area, such as automobile defects or hazardous materials exposure, with specific, previously agreed-on metrics as opposed to more general, "right-to-know" disclosure).

The political appeal was easy to get: Respond to a crisis quickly without getting mixed up in thorny regulation. Harness the power of technology and the market at a time when people don't trust their government anyway. But there seemed to be less understanding of whether the faddish approach actually worked to produce "significant, long-term behavior changes by users and disclosers in the direction intended by policymakers." True, there were some successes. But there were also some costly failures. And many policies didn't seem to be making much of a meaningful difference. The authors wanted to know why.

In one sense, "Full Disclosure" is aguide for policymakers, complete with the requisite "10 principles for an effective transparency policy" guide. Their basic advice is that for transparency policy to be effective, the information must be both easy to understand and easy to act upon. Users must be able to register their choices clearly, and disclosers must have the ability and incentive to respond meaningfully. As an example of a relatively successful policy, the authors offer up Los Angeles restaurant hygiene. Every restaurant in that city must post a health inspection score (A, B or C) in its window: easy to interpret, easy to act upon and every restaurant owner knows what happens when the score drops from A to B.

Problem is, such effective policies are hard to come by. That's because they are, after all, a product of politics, and politics is a nasty business. Targeted groups fight tooth and nail to make sure that disclosures are weak and confusing, and, therefore, largely ineffectual: What, exactly, will be disclosed? How will it be measured? How often will it be disclosed? And who has to disclose it? It all depends on who is at the political table. "Targeted transparency policies are often born in crisis," the authors write, "usually as political compromises reflecting the relative power of organized representatives of potential disclosers and weak coalitions of potential users."

A disclosure policy written to favor the disclosers tends to result in atrophy. Only when users (or as is more often the case, groups working on behalf of users) gain some political power can disclosure become sustainable and effective. Good transparency policies can do this, essentially changing the "political terrain." Good policies empower users. They also ultimately make it so disclosers have no incentive to undermine transparency.

Consider financial disclosures for publicly traded companies. First introduced in the early 1930s in response to the stock market crash of 1929, financial disclosure has generally worked well (though, there have been some recent, err, hiccups). That's because investors as a class have been politically powerful. But it's also because they've made use of financial information to send signals to corporations that they value disclosure. Equally important, companies came to value transparency because it made raising capital easier (investors are less skittish when they have faith in the numbers). In short, incentives were well aligned all around; everybody was better off with a system of transparency. But, "significant incentives for disclosers to support transparency do not materialize until a viable system is in place or seems inevitable."

At best, "Full Disclosure" ought to make citizens wise to the tricks that commonly turn transparency policies into little more than symbolism. At worst, the book is just one more piece of information, interesting but difficult to act on, because though there is plenty of sunlight shining into our political process, there's little the average reader (or even the average policymaker) can do when powerful interests dig in their heels. If James Madison once warned that "a popular government without popular information or the means of acquiring it, is but a Prologue to Farce or a Tragedy or perhaps both," then Fung, Graham and Weil seem to be warning that even with popular information and the means of acquiring it, farce and tragedy remain acute dangers absent a meaningful way to act on that information.

Lee Drutman is the co-author of "The People's Business: Controlling Corporations and Restoring Democracy."

http://sfgate.com/cgi-bin/article.cgi?f=/c/a/2007/04/16/DDGR5P8IOH1.DTL